A deal too far for Jarvis?

HAVE WE seen the best of Jarvis? The fast-growing transport infrastructure and facilities management group has been one of the market's favourite stocks in recent years. But in the past few weeks investors have slammed on the brakes, and yesterday the shares dropped another 30.5p to 716p.

This despite impressive full-year figures which showed pretax profits more than doubling to pounds 36.7m on turnover up 36 per cent to pounds 355m. Even the news that Jarvis is the preferred bidder on a range of contracts worth a combined pounds 300m failed to boost the shares.

This is partly just profit-taking. After all, Jarvis shares have risen more than 30-fold since the beginning of 1996. But the concerns run deeper. Specifically, shareholders worry that Jarvis may have done a deal too far in buying Streamline, the quoted road services business, for pounds 185m in May.

Paris Moayedi, Jarvis's chief executive, argues that it makes sense to branch out into roads and airports. But sceptics point out that in rail Jarvis is dealing with a private-sector customer while in roads it depends on the government. The government's dislike of road travel hardly bodes well.

Moreover, Jarvis will not be able to repeat the trick it managed last year with Fastline and Relayfast, the track renewal companies, in buying underperforming assets and turning them around. Instead, Jarvis paid a full price for a company which was already very profitable.

Brokers expect profits of pounds 57m in the coming year, putting the shares on a forward p/e ratio of 23. Given the uncertainty, the shares are still overvalued.